Shands Teaching Hospital and Clinics, Inc. and … · Shands Teaching Hospital and Clinics, Inc....

Shands Teaching Hospital and Clinics, Inc. and Subsidiaries Consolidated Basic Financial Statements, Required Supplementary Information and Supplemental Consolidating Information June 30, 2011

Shands Teaching Hospital and Clinics, Inc. and Subsidiaries Index June 30, 2011

Page(s)

Management's Discussion and Analysis (Unaudited) ................................................................................ 1-7

Report of Independent Certified Public Accountants .......................................................................... 8-9

Consolidated Basic Financial Statements

Consolidated Basic Statement of Net Assets ............................................................................................. 10

Consolidated Basic Statement of Revenues, Expenses and Changes in Net Assets ........................... 11-12

Consolidated Basic Statement of Cash Flows ....................................................................................... 13-14

Notes to Consolidated Basic Financial Statements ............................................................................... 15-43

Required Supplementary Information

Schedule of Plan Funding Progress (Unaudited) ....................................................................................... 44

Historical Summary of Actual and Required Pension Contributions (Unaudited) ....................................... 45

Historical Summary of Actual and Required Other Postretirement Contributions Under GASB Statement No. 45 (Unaudited) ............................................................................................ 46

Supplemental Consolidating Information

Consolidating Basic Statement of Net Assets............................................................................................. 47

Consolidating Basic Statement of Revenues, Expenses and Changes in Net Assets .......................... 48-49

Shands Teaching Hospital and Clinics, Inc. and Subsidiaries Management's Discussion and Analysis (Unaudited) June 30, 2011

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This section of the Shands Teaching Hospital and Clinics, Inc. and Subsidiaries’ (“Shands”) annual

financial report presents Shands' analysis of its financial performance as of June 30, 2011, and for the

fiscal year then ended. Please read this analysis in conjunction with the consolidated basic financial

statements, which follow this section.

Introduction

Shands Teaching Hospital and Clinics, Inc. and Subsidiaries includes the following:

Shands UF, a major tertiary care teaching institution licensed to operate an 852-bed teaching hospital

which provides clinical settings for medical education programs at the University of Florida.

Shands Vista, an inpatient psychiatric and substance abuse facility licensed to operate 81 beds, of which

57 are psychiatric and 24 are substance abuse.

Shands Rehab Hospital, a 40-bed inpatient rehabilitation hospital located on the same campus as

Shands Vista.

Shands HomeCare is a hospital-based home care agency providing home care services to the citizens

of north central Florida.

Property Management leases properties including a condominium medical office building and

nonmedical buildings.

ElderCare of Alachua County, Inc. provides social and health care support to the elderly in Alachua

County, Florida.

Southeastern HealthCare Foundation, Inc. provides charitable aid to the University of Florida and to

Shands and owns and leases various rental properties in Florida.

First Coast Advantage Central, LLC is a provider service network ("PSN") established to administer

Medicaid in Alachua County and certain contiguous counties.

In November 2009, Shands AGH, an acute care community hospital located in Gainesville, Florida, was

closed and its services consolidated into Shands UF.

On July 1, 2010, Shands sold the operating assets and certain liabilities of three rural hospitals (Shands

at Lake Shore, Shands Starke, and Shands Live Oak) to Health Management Associates, Inc. (“HMA”).

Shands then entered into a partnership agreement with HMA for a 40% minority interest in Lake Shore

HMA, LLC, Starke HMA, LLC, and Live Oak HMA, LLC and HMA manages the operations of the three

facilities. Shands also has an equal partnership interest with Solantic of Orlando, LLC for a walk-in urgent

care center.


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Effective September 8, 2010, the Board of Directors of Shands approved a motion to reorganize its

corporate structure. Under the reorganization, Shands will no longer be the sole corporate member of

Shands Jacksonville HealthCare, Inc. (“Shands Jacksonville”), but will continue as an affiliated entity

under common control of the University of Florida. Effective September 27, 2010, the Board of Directors

of Shands Jacksonville approved the motion for Shands to no longer be the sole corporate member of

Shands Jacksonville. The reorganization is being accounted for under the de-pooling method of

accounting, and, as such, Shands Jacksonville is no longer consolidated with Shands effective July 1,

2010. Therefore, the financial position and results of operations and changes in net assets of Shands

Jacksonville are not included in these consolidated basic financial statements.

After reassessing its articles of incorporation and bylaws, Shands determined that it meets the definition

of a governmental entity and thus adopted Governmental Accounting Standards Board (“GASB”) financial

reporting. Previously, Shands utilized Financial Accounting Standards Board (“FASB”) financial reporting.

The primary consolidated basic financial statement items affected by the change in accounting treatment

are derivatives, pension liabilities, postemployment benefits, and related effects to net assets. Due to the

differences in accounting treatment and presentation of results, it is management’s determination that it is

not practical to present the consolidated basic financial statements reflecting prior year comparative

information.

As such, Shands is presenting financial results as of June 30, 2011 and the fiscal year then ended in

single-year format. Management will make reference in its discussion and analysis to certain financial

results and statistics from the prior year not impacted by the GASB to FASB conversion. Comparative

analysis will be presented in future years’ consolidated basic financial statements.

This section of Shands’ financial statements presents analysis of the financial condition, the results of

operations and cash flows of Shands as of June 30, 2011 and for the fiscal year then ended. Along with

the information in this report, the notes to the consolidated basic financial statements should be used to

provide additional information that is essential for a full understanding of the consolidated basic financial

statements.

Overview of the Financial Statements

Along with management’s discussion and analysis, the annual financial report includes the independent

certified public accountants’ report, and the consolidated basic financial statements of Shands. The

consolidated basic financial statements also include notes that explain in more detail some of the

information in the consolidated basic financial statements. By referring to the accompanying notes to the

consolidated basic financial statements, a broader understanding of issues impacting financial

performance can be realized.

Statement of Net Assets

The consolidated basic statement of net assets presents the financial position of Shands as of June 30,

2011 and includes all assets and liabilities of Shands. Shands’ net assets, or the difference between total

assets and total liabilities, are one indicator of the current financial condition of Shands. Changes in net

assets are an indicator of whether the overall financial condition of the organization has improved or

worsened over a period of time. Assets and liabilities are generally measured using current values, with

the exception of capital assets, which are stated at historical cost less allowances for depreciation.


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A summary of Shands’ consolidated basic statement of net assets at June 30, 2011 is presented below:

(in thousands of dollars)

Cash and cash equivalents and short-term investments 126,736$

Other current assets 183,965

Capital assets, net 732,468

Other assets 399,410

Total assets 1,442,579$

Current liabilities 194,662$

Long-term liabilities 516,946

Total liabilities 711,608

Net assets

Invested in capital assets, net of related debt 233,936

Restricted

Nonexpendable 97

Expendable 5,684

Unrestricted 491,254

Total net assets 730,971

Total liabilities and net assets 1,442,579$

Cash and cash equivalents and short-term investments decreased by approximately $40.7 million since

June 30, 2010. See “Statement of Cash Flows” section below for further information regarding cash

activity.

Other current assets decreased by approximately $44.3 million since June 30, 2010 due primarily to

receipt of the proceeds associated with the sale of the operating assets and certain liabilities in the three

rural hospitals, Shands at Lake Shore, Shands Starke, and Shands Live Oak to Health Management

Associates, Inc. (“HMA”) on July 1, 2010. Subsequent to the sale, Shands purchased a 40% interest in

the newly formed limited liability companies that now own the rural hospitals. HMA is managing the

operations of the three rural hospitals’ combined 139 beds.

Capital assets acquired in the fiscal year totaled approximately $69.9 million, primarily related to the

project costs associated with the installation and implementation of an electronic medical record (“EMR”)

system and the construction of the Pediatric Emergency Room.

Other assets were primarily affected by the change from FASB to GASB as it related to the accounting

treatment of Shands’ defined benefit pension plan, resulting in prepaid pension assets to increase

approximately $82 million. Assets whose use is restricted, less current portion, increased by

approximately $36.5 million during fiscal year 2011 as a result of increased funding by the Board of

Directors for specific purposes such as: assets held in trust, strategic capital, post-retirement benefits,

and other health programs.

Current liabilities decreased by approximately $13.0 million during fiscal year 2011 due to the conclusion

of construction of the Cancer Hospital project which increased vendor payables in 2010 and other timing

differences for various vendor payments.


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Long-term liabilities were primarily affected by the change from FASB to GASB as it related to the

accounting treatment of pension and post-employment benefit liabilities and derivatives. Long-term debt,

noncurrent portion, and capital lease obligations, noncurrent portion, decreased approximately $17.7

million during fiscal year 2011 due to principal payments.

Net assets were primarily affected by the excess of revenues over expenses and the change from FASB

to GASB as it related to the accounting treatment of pension and post-employment benefit liabilities,

derivatives and other changes.

Statement of Revenues, Expenses and Changes in Net Assets

The following table presents Shands’ condensed consolidated basic statement of revenues, expenses

and changes in net assets for the year ended June 30, 2011:


Net patient service revenue 960,344$

Other operating revenue 17,383

Total operating revenues 977,727

Operating expenses 938,561

Operating income 39,166

Nonoperating revenues, net 35,832

Excess of revenues over expenses 74,998

Other changes in net assets

Capital contributions 674

Expenditures in support of the University of Florida

and its medical programs (37,675)

Change in accounting treatment of effective derivative instruments

and change in fair value of hedging derivative instruments 39,649

Shands Jacksonville note receivable 42,276

Other changes in net assets 1,714

Increase in net assets 121,636$


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Patient Volumes

Compared to the prior year, inpatient and outpatient volumes decreased primarily as a result of the

closure of Shands AGH in November 2009, and the sale of the three rural hospitals to HMA in July 2010.

The following tables reflect the associated volumes of each facility on a comparative basis to the prior

year.

Net %

2011 2010 Change Change

In-Patient Admissions

Shands UF 36,150 34,026 2,124 6.2%

Shands Vista 3,009 2,768 241 8.7%

Shands Rehab Hospital 808 753 55 7.3%

Subtotal 39,967 37,547 2,420 6.4%

Shands AGH - 1,995 (1,995) -100.0%

Lake Shore, Starke, and Live Oak - 5,963 (5,963) -100.0%

Total 39,967 45,505 (5,538) -12.2%

Net %

2011 2010 Change Change

Out-Patient Visits

Shands UF 707,271 667,399 39,872 6.0%

Shands Vista 20,930 18,487 2,443 13.2%

Shands Rehab Hospital 1,343 1,073 270 25.2%

Subtotal 729,544 686,959 42,585 6.2%

Shands AGH - 25,152 (25,152) -100.0%

Lake Shore, Starke, and Live Oak - 303,786 (303,786) -100.0%

Total 729,544 1,015,897 (286,353) -28.2%

In-patient admissions compared to the prior year were lower by 12.2%. Over the same period, the

admission levels for Shands UF, Vista and Rehab increased 6.4% compared to their prior year volumes

primarily related to the closure of Shands AGH. Out-patient visits compared to the prior year were lower

by 28.2%. Over the same period, the out-patient visit levels for Shands UF, Vista and Rehab increased

6.2% compared to their prior year volumes primarily related to the closure of Shands AGH.

Operating Revenues

Patient service revenue, net of allowances for contractual discounts, charity care and bad debt expense,

was approximately $960.3 million, a decrease of approximately $56.6 million, or 5.6% from fiscal year

2010. The primary factor for the decrease was the sale of the three rural hospitals in July 2010. Other

operating revenues of approximately $17.4 million were approximately $1.0 million lower than the prior

year primarily related to the closure of Shands AGH.


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Operating Expenses

Operating expenses for fiscal year 2011 were approximately $938.6 million, a decrease of approximately

$53.8 million, or 5.4%, from fiscal year 2010. The primary factor for the decrease was the sale of the

three rural hospitals in July 2010 which resulted in a decrease of approximately $36.2 million in salaries

and benefits.

Nonoperating Revenues, Net

Nonoperating revenues, net for fiscal year 2011 were approximately $35.8 million. State appropriations

and interest expense are included in nonoperating revenues, net, in accordance with GASB Statement

No. 34, Basic Financial Statements and Management’s Discussion and Analysis for State and Local

Governments. State appropriations, net were approximately $7.5 million. Interest expense was

approximately $16.9 million. Net investment income, including the change in fair value of investments,

totaled approximately $37.5 million. Losses and the change in value of derivative instruments totaled

approximately $0.415 million. Gain on disposal of capital assets totaled approximately $4.0 million, and

other nonoperating revenues totaled approximately $4.1 million.

Statement of Cash Flows

The statement of cash flows provides additional information in regards to Shands’ financial results by

reporting the major sources and uses of cash.

Total cash and cash equivalents and short-term investments decreased in fiscal year 2011 by

approximately $40.7 million. Capital asset acquisitions during the fiscal year totaled approximately $58.0

million. Payment of principal on long-term debt and capital lease obligations was approximately $17.7

million. Shands also funded the employee pension plan by approximately $40.5 million in excess of

pension expense. On July 1, 2010, Shands received net cash proceeds of approximately $21.1 million

from HMA from the sale of the operating assets and certain liabilities of the three rural hospitals. Shands

and HMA then entered into a joint partnership for the management and operation of the three facilities.

Debt Outstanding

As of June 30, 2011, Shands had approximately $498.7 million in debt outstanding compared to

approximately $507.2 million the previous year. Long-term debt is comprised of bond issues and

installment debt, described in more detail in Note 6 to the consolidated basic financial statements.

Shands utilizes interest rate swaps in order to synthetically convert certain variable rate bonds to fixed

rate bonds. Including the effect of the interest rate swaps, approximately 71% of Shands’ bonds

outstanding are fixed while 29% are variable. The Series 1996A Bonds are fixed rate bonds insured by

MBIA. The Series 2007A and B Bonds, Series 2008C Bonds, and $50 million of the Series 2008A Bonds

are variable rate bonds with fixed rate payor interest rate swaps which synthetically converts them to fixed

rate bonds. The Series 2008B Bonds, Series 2010A Bonds, and $25 million of the Series 2008A Bonds

are variable rate bonds. Shands entered into installment debt agreements to finance the costs of

implementation of an EMR system, as well as an upgrade to its financial and human resources

information services system.


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Capital Assets

At June 30, 2011, Shands had approximately $233.9 million invested in net capital assets. A breakdown

of these assets can be found in Note 5 to the consolidated basic financial statements. This represents a

decrease of approximately $8.0 million from the previous year. Shands expects to make total capital

expenditures of approximately $81.9 million in fiscal year 2012 primarily on expenditures for the EMR

project, facility upgrades, information systems and patient care equipment. These capital purchases are

expected to be funded directly from operations.

Credit Ratings

Shands has received underlying credit ratings of A2 and A from Moody’s Investor Services and Standard

& Poor’s, respectively. Both firms have assigned an outlook of “Stable”. The Moody’s rating was affirmed

in June 2010 and the Standard & Poor’s rating was affirmed in August 2011.

Report of Independent Certified Public Accountants

To the Board of Directors of

Shands Teaching Hospital and Clinics, Inc. and Subsidiaries

In our opinion, the accompanying consolidated basic statement of net assets and the related consolidated

basic statement of revenues, expenses and changes in net assets and of cash flows present fairly, in all

material respects, the financial position of Shands Teaching Hospital and Clinics, Inc. and Subsidiaries

("Shands”) as of June 30, 2011, and the changes in its net assets and its cash flows for the year then

ended in conformity with accounting principles generally accepted in the United States of America. These

financial statements are the responsibility of Shands' management. Our responsibility is to express an

opinion on these financial statements based on our audit. We conducted our audit of these statements in

accordance with auditing standards generally accepted in the United States of America. Those standards

require that we plan and perform the audit to obtain reasonable assurance about whether the financial

statements are free of material misstatement. An audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in the financial statements, assessing the accounting principles

used and significant estimates made by management, and evaluating the overall financial statement

presentation. We believe that our audit provides a reasonable basis for our opinion.

As discussed in Note 2 to the consolidated basic financial statements, Shands has restated its 2010

financial statements to correct an error as the prior year financial statements were prepared under

Financial Accounting Standards Board standards and not Governmental Accounting Standards Board

standards. As the prior period financial statements have not been presented herein, the restatement has

been effected as an adjustment to the opening net asset balance as of July 1, 2010.

As discussed in Note 2 to the consolidated basic financial statements, Shands adopted Governmental

Accounting Standards Board (“GASB”) No. 62, Codification of Accounting and Financial Reporting

Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, effective July 1,

2010.

The Management's Discussion and Analysis ("MD&A") for the year ended June 30, 2011, the Schedule of

Plan Funding Progress as of July 1, 2006 through March 31, 2011 (Unaudited), the Historical Summary of

Actual and Required Pension Contributions as of July 1, 2005 through June 30, 2011 (Unaudited), and the

Historical Summary of Actual and Required Other Postemployment Contributions under GASB Statement

No. 45 as of July 1, 2008 through June 30, 2011 (Unaudited), as listed in the index, are not a required part

of the consolidated basic financial statements but are supplementary information required by accounting

principles generally accepted in the United States of America. We have applied certain limited

procedures, which consisted principally of inquiries of management regarding the methods of

measurement and presentation of the required supplementary information. However, we did not audit the

information and express no opinion on it.

PricewaterhouseCoopers LLP, 4221 West Boy Scout Boulevard, Suite 200, Tampa, FL 33607 T: (813) 229 0221, F: (813) 229 3646, www.pwc.com/us

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Our audit was conducted for the purpose of forming an opinion on the consolidated basic financial

statements as a whole. The consolidating information is presented for purposes of additional analysis of

the consolidated basic financial statements rather than to present the financial position and results of its

operations and changes in net assets of the individual companies. The consolidating information has

been subjected to the auditing procedures applied in the audit of the consolidated basic financial

statements and, in our opinion, is fairly stated in all material respects in relation to the consolidated basic

financial statements taken as a whole.

September 30, 2011

Shands Teaching Hospital and Clinics, Inc. and Subsidiaries Consolidated Basic Statement of Net Assets June 30, 2011


The accompanying notes are an integral part of these consolidated basic financial statements.

10

Assets

Current assets

Cash and cash equivalents 17,794$

Short-term investments 108,942

Patient accounts receivable, net of allowance for uncollectibles of $35,557 112,344

Inventories 13,001

Prepaid expenses and other current assets 38,309

Assets whose use is restricted, current portion 20,311

Total current assets 310,701

Assets whose use is restricted, less current portion 201,814

Capital assets, net 732,468

Other assets 197,596

Total assets 1,442,579$

Liabilities and Net Assets

Current liabilities

Long-term debt, current portion 20,834$

Capital lease obligations, current portion 873

Accounts payable and accrued expenses 58,277

Accrued salaries and leave payable 49,882

Estimated third-party payor settlements 64,796

Total current liabilities 194,662

Long-term liabilities

Long-term debt, noncurrent portion 477,839

Capital lease obligations, noncurrent portion 1,447

Other liabilities 37,660

Total long-term liabilities 516,946

Total liabilities 711,608

Commitments and contingencies

Net assets

Invested in capital assets, net of related debt 233,936

Restricted

Nonexpendable 97

Expendable 5,684

Unrestricted 491,254

Total net assets 730,971

Total liabilities and net assets 1,442,579$

Shands Teaching Hospital and Clinics, Inc. and Subsidiaries Consolidated Basic Statement of Revenues, Expenses and Changes in Net Assets Year Ended June 30, 2011



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Operating revenues

Net patient service revenue, net of provision for bad debts of $85,176 960,344$


Total operating revenues 977,727

Operating expenses

Salaries and benefits 462,739

Supplies and services 423,874

Depreciation and amortization 51,948

Total operating expenses 938,561


Nonoperating revenues (expenses)

State appropriations 7,500

Interest expense (16,860)

Net investment income, including change in fair value 37,051

Gain on disposal of capital assets, net 4,037

Other nonoperating revenues 4,104

Total nonoperating revenues, net 35,832

Excess of revenues over expenses before transfers,

capital contributions, changes in fair value of hedging derivative instruments, and other changes in net assets 74,998$

Shands Teaching Hospital and Clinics, Inc. and Subsidiaries Consolidated Basic Statement of Revenues, Expenses and Changes in Net Assets Year Ended June 30, 2011



12

Excess of revenues over expenses before transfers, capital contributions,

changes in fair value of hedging derivative instruments, and

other changes in net assets 74,998$

Capital contributions 674

Transfers and expenditures in support of the University of Florida and its

medical programs (37,675)

Change in accounting treatment of effective derivative instruments

and change in fair value of hedging derivative instruments 39,649

Shands Jacksonville note receivable 42,276

Other changes in net assets 1,714

Increase in net assets 121,636

Net assets

Beginning of year, as restated (Note 2) 609,335

End of year 730,971$

Shands Teaching Hospital and Clinics, Inc. and Subsidiaries Consolidated Basic Statement of Cash Flows Year Ended June 30, 2011



13

Cash flows from operating activities

Cash received from patients and third-party payors 965,769$

Other receipts from operations 14,335

Salaries and benefits paid to employees (506,511)

Payments to suppliers and vendors (414,142)

Net cash provided by operating activities 59,451

Cash flows from noncapital financing activities

Payments received on notes receivable 1,609

Payments in support of the University of Florida and its medical programs (37,399)

Donations and pledge receipts 4,108

Net cash used in noncapital financing activities (31,682)

Cash flows from capital and related financing activities

Purchase of capital assets (58,044)

Proceeds from sale of capital assets 35,252

Payments of long-term debt and capital lease obligations (17,715)

Interest paid (17,570)Capital contributions 640

Net cash used in capital and related financing activities (57,437)

Cash flows from investing activities

Investment income received 5,856Interest in joint venture (14,117)

Purchase of short-term investments and assets whose use is restricted (163,110)

Sale of short-term investments and assets whose use is restricted 194,306

Termination portion of the 2008A fixed rate payer interest rate swap (3,357)

Other investing activity 407

Net cash provided by investing activities 19,985

Net decrease in cash and cash equivalents (9,683)

Cash and cash equivalents

Beginning of year 27,477

End of year 17,794$

Supplemental noncash investing, capital and financing activities

Shands Jacksonville note receivable (Note 11) 42,276$

Capital assets financed through installment debt 8,350

Shands Teaching Hospital and Clinics, Inc. and Subsidiaries Consolidated Basic Statement of Cash Flows Year Ended June 30, 2011



14

Reconciliation of operating income to net cash provided by

operating activities

Operating income 39,166$

Adjustments to operating income to net cash provided by

operating activities

Depreciation and amortization 51,948

Provision for bad debts 85,176

Changes in:

Patient accounts receivable (75,191)

Prepaid expenses and other current assets 9,924

Inventory (959)

Other assets (4,971)

Accounts payable and accrued expenses 2,690

Accrued salaries and leave payable (1,645)

Estimated third-party payor settlements (4,560)

Other liabilities (42,127)

Total adjustments 20,285

Net cash provided by operating activities 59,451$

Shands Teaching Hospital and Clinics, Inc. and Subsidiaries Notes to Consolidated Basic Financial Statements June 30, 2011

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1. Organization

Shands Teaching Hospital and Clinics, Inc. and Subsidiaries (“Shands”) was incorporated on

October 15, 1979 as a Florida not-for-profit corporation. The President of the University of Florida

("UF"), or his designee, serves as the President of Shands’ Board of Directors and retains

appointment and termination rights over a majority of the members of Shands’ Board of Directors.

The President of UF is deemed a state official as the position is appointed by a Board of Trustees

that govern UF (the "UF Board"), and the members of the UF Board are appointed by the Governor

and the Board of Governors of the state of Florida.

Shands operates a multi-hospital system. The accompanying consolidated basic financial

statements consolidate the accounts of Shands and its subsidiaries, as described below:

Shands UF, a division of Shands, is a major tertiary care teaching institution located in

Gainesville, Florida, licensed to operate an 852-bed teaching hospital. Shands UF is a

leading referral center in the State of Florida and provides clinical settings for medical

education programs at the University of Florida.

Shands Vista, a division of Shands, is an inpatient psychiatric and substance abuse facility

located in Gainesville, Florida, licensed to operate 81 beds, of which 57 are psychiatric and 24

are substance abuse.

Shands Rehab Hospital, a division of Shands, is a 40-bed inpatient rehabilitation hospital

located on the same campus as Shands Vista.

Shands HomeCare, a division of Shands, is a hospital-based home care agency providing

home care services to the citizens of north central Florida.

Property Management, a division of Shands, leases properties in Gainesville including a

condominium medical office building and nonmedical buildings.

ElderCare of Alachua County, Inc. (“ElderCare”), a Florida not-for-profit corporation,

provides social and health care support to the elderly in Alachua County, Florida, through

programs such as Meals on Wheels and an Alzheimer’s Day Care Center. Shands is the sole

corporate member of ElderCare.

Southeastern HealthCare Foundation, Inc. (“Foundation”), a Florida not-for-profit

corporation, provides charitable aid to the University of Florida and to Shands and owns and

leases various rental properties in Florida. Shands is the sole corporate member of the

Foundation.

First Coast Advantage Central, LLC is a provider service network (“PSN”) established to

administer Medicaid in Alachua and certain contiguous counties.

In November 2009, Shands AGH, an acute care community hospital located in Gainesville, Florida,

was closed and its services consolidated into Shands UF.


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On July 1, 2010, Shands sold the operating assets and certain liabilities of three rural hospitals

(Shands at Lake Shore, Shands Starke, and Shands Live Oak) to Health Management Associates,

Inc. (“HMA”). Shands then entered into a partnership agreement with HMA for a 40% minority

interest in Lake Shore HMA, LLC, Starke HMA, LLC, and Live Oak HMA, LLC and HMA manages

the operations of the three facilities. Shands also has an equal partnership interest with Solantic of

Orlando, LLC for a walk-in urgent care center.

Effective September 8, 2010, the Board of Directors of Shands approved a motion to reorganize its

corporate structure. Under the reorganization, Shands will no longer be the sole corporate member

of Shands Jacksonville HealthCare, Inc. (“Shands Jacksonville”), but will continue as an affiliated

entity under common control of the University of Florida. Effective September 27, 2010, the Board

of Directors of Shands Jacksonville approved the motion for Shands to no longer be the sole

corporate member of Shands Jacksonville. The reorganization is being accounted for under the

de-pooling method of accounting, and, as such, Shands Jacksonville is no longer consolidated with

Shands effective July 1, 2010. Therefore, the financial position and results of operations and

changes in net assets of Shands Jacksonville are not included in these consolidated basic financial

statements.

The condensed results of operations and changes in net assets of Shands Jacksonville from

July 1, 2010 to September 27, 2010 are as follows:

Net patient service revenue 127,459$


Operating revenues 132,758

Operating expenses 123,404


Nonoperating revenues, net 245

Excess of revenues over expenses 9,599

Other changes in net assets

Expenditures in support of the University of Florida and its

medical programs (6,479)

Note payable to Shands (42,276)

Decrease in net assets (39,156)$

2. Summary of Significant Accounting Policies

The following is a summary of the significant accounting policies followed by Shands in the

presentation of these consolidated basic financial statements:

Basis of Presentation

The accompanying consolidated basic financial statements have been prepared on the accrual

basis of accounting and include the accounts of Shands and its subsidiaries. Significant

intercompany accounts and transactions have been eliminated.

After reassessing its articles of incorporation and bylaws, Shands determined that it meets the

definition of a governmental entity and thus, should apply generally accepted accounting principles

applicable to governmental entities. As of July 1, 2010, Shands adopted GASB Statement No. 62,

Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989

FASB and AICPA Pronouncements ("GASB No. 62"). GASB No. 62 incorporated into the GASB's


17

authoritative literature certain accounting and financial reporting guidance that is included in the

following pronouncements issued on or before November 30, 1989 that don't conflict with GASB

pronouncements:

FASB Statements and Interpretations;

Accounting Principles Board Opinions; and

Accounting Research Bulletins of the American Institute of Certified Public Accountants'

("AICPA") Committee on Accounting Procedure.

GASB No. 62 also supersedes GASB No. 20, thereby eliminating the election provided in GASB

No. 20 for enterprise funds and governments engaged in business-type activities to apply post-

November 30, 1989 FASB Statements and Interpretations that do not conflict with or contradict

GASB pronouncements. However, those entities can continue to apply, as other accounting

literature, post-November 30, 1989 FASB pronouncements that do not conflict with or contradict

GASB pronouncements. Adoption of GASB No. 62 had no impact on the consolidated basic

financial statements. Shands uses the proprietary fund method of accounting whereby revenues

and expenses are recognized on the accrual basis.

Beginning net assets have been restated for adoption of GASB pronouncements. The primary

consolidated basic financial statement items affected by the adoption were short-term investments,

derivatives, pension liabilities, and other postemployment benefits.

The adjustment to net assets at July 1, 2010 was as follows:


Net assets at June 30, 2010 (unadjusted) 302,070$

Increase in fair value of short-term investments 1,213

Decrease in fair value of derivative instruments (2,996)

Decrease in pension liability 308,345

Decrease in other postemployment liability 703

Change in net assets 307,265

Net assets at July 1, 2010, as restated 609,335$

Use of Estimates

The preparation of these consolidated basic financial statements in conformity with accounting

principles generally accepted in the United States of America requires management to make

estimates and assumptions that affect the amounts reported in the consolidated basic financial

statements and accompanying notes. Actual results could differ from those estimates.

Tax Status

Shands and its subsidiaries are exempt from federal income taxes pursuant to Section 501(a) as

organizations described in Section 501(c)(3) of the Internal Revenue Code and from state income

taxes pursuant to Chapter 220 of the Florida Statutes.


18

Cash and Cash Equivalents

Cash and cash equivalents include investments in highly liquid instruments with maturities of three

months or less when purchased, except those classified as assets whose use is restricted in the

accompanying consolidated basic financial statements.

Investments

Investments primarily consist of domestic and global fixed income funds, global equity funds,

hedge funds, and a private equity partnership.

Investments are carried at fair value. Interest, dividends, and gains and losses on investments,

both realized and unrealized, are included in nonoperating revenues when earned.

The estimated fair value of investments is based on quoted market prices, except for alternative

investments for which quoted market prices are not available. Alternative investments held by

Shands include private equity and hedge funds. Shands classifies its alternative investments as

assets whose use is restricted, less current portion in the accompanying consolidated basic

statement of net assets as management does not have the intent, and in the case of its

investments in private equity, does not have the ability to sell a portion of the alternative

investments in the near term. The estimated fair value of the private equity and hedge funds is

based on valuations provided by the respective partnerships or funds. Shands reviews and

evaluates the values provided by the partnerships or funds and agrees with the valuation methods

and assumptions used in determining the fair value of the private equity and hedge fund

investments. As of June 30, 2011, these equity investments in hedge funds and private equity

make up approximately 6% and 1%, respectively, of total investments in the accompanying

consolidated basic statement of net assets. Because private equity and hedge funds are not

readily marketable, their estimated value is subject to uncertainty and therefore, may differ from the

value that would have been used had a ready market for such investments existed. Such

difference could be material. Unrealized gains or losses on investments resulting from fair value

fluctuations are recorded in the accompanying consolidated basic statement of revenues,

expenses and changes in net assets in the period such fluctuations occur.

Assets Whose Use is Restricted

Assets whose use is restricted primarily include assets held by trustees under indenture

agreements and designated assets set aside by the Board of Directors (the “Board”). The Board

retains control of the designated assets and may, at its discretion, subsequently determine their

use for other purposes. Amounts required to meet current liabilities are reported as current assets.

Inventories

Inventories consist principally of medical, surgical, and pharmaceutical supplies that are stated at

the lower of cost (average cost method) or market.

Pledges Receivable

Pledges receivable represents donor commitments to provide future funding, primarily in

association with various capital construction projects at Shands. Pledges receivable are recorded

net of an estimated reserve. The current portion of pledges receivable are reported in prepaid

expenses and other current assets in the accompanying consolidated basic statement of net

assets. The long-term portion of pledges receivable are reported in other assets in the

accompanying consolidated basic statement of net assets. Pledge discount rates range from 3% -

7% and are generally due in five years or greater.


19

Capital Assets

Capital assets have been recorded at historical cost or fair market value at date of purchase or

donation, respectively. Equipment under capital leases is stated at the present value of minimum

lease payments at the inception of the lease. Routine maintenance and repairs are expensed

when incurred. Expenditures that materially increase the value, change the capacity or extend the

useful life of an asset are capitalized. Interest costs incurred on borrowed funds during the period

of construction of capital assets are capitalized as a component of the cost of acquiring those

assets. Depreciation for financial reporting purposes is computed using the straight-line method

over the estimated useful lives of the related depreciable assets as recommended by the American

Hospital Association. Capital assets under capital leases are amortized using the straight-line

method over the shorter period of the lease term or the estimated useful life of the related assets.

Such amortization is included in depreciation and amortization expense in the accompanying

consolidated basic statement of revenues, expenses and changes in net assets. Gains and losses

on dispositions are recorded in the year of disposal.

Goodwill

Goodwill represents the excess of the acquisition cost over the fair value of the net assets of

businesses acquired. Goodwill was approximately $2,982,000 at June 30, 2011, and is included in

other assets in the accompanying consolidated basic statement of net assets. Goodwill is

evaluated for impairment annually. Management evaluated goodwill and based on the analysis

performed, no impairment loss was recorded for the year ended June 30, 2011.

Joint Ventures

In May 2010, Shands entered into an agreement to sell a 60% controlling interest in its three rural

hospitals, Shands at Lake Shore, Shands Starke, and Shands Live Oak to Health Management

Associates, Inc. (“HMA”). The closing date of the sale was July 1, 2010. Shands recognized a gain

on disposal of capital assets of approximately $4,711,000 which is included in gain on disposal of

capital assets in the accompanying consolidated basic statement of revenues, expenses and

changes in net assets. Shands accounts for the investment under the equity method of accounting.

The investment was approximately $12,823,000, which was recorded in other assets in the

accompanying consolidated basic statement of net assets at June 30, 2011. The investment loss

of approximately $1,545,000 was recorded in other nonoperating revenues in the accompanying

consolidated basic statement of revenues, expenses and changes in net assets for the year ended

June 30, 2011.

Bond Issuance Costs and Bond Premium and Discounts

Bond issuance costs and bond premiums and discounts are amortized over the period the bonds

are outstanding using the effective interest method. Amortization of bond issuance costs of

approximately $320,000 was recorded for the year ending June 30, 2011 and unamortized bond

costs at June 30, 2011 of approximately $2,461,000 was recorded in other assets in the

accompanying consolidated basic statement of net assets.

Accrued Personal Leave

Shands provides accrued time off to eligible employees for vacations, holidays, and short-term

illness dependent on their years of continuous service and their payroll classification. Shands

accrues the estimated expense related to personal leave based on pay rates currently in effect.

Upon termination of employment, employees will have their eligible accrued personal leave paid in

full.


20

Long-Term Debt

The fair value of fixed rate debt is estimated based on dealer quotes for hospital tax-exempt debt

with similar terms and maturities and using discounted cash flow analyses based on current

interest rates for similar types of borrowing arrangements. The fair value of variable rate debt

approximates its carrying value. The carrying value of Shands’ long-term debt is approximately

$498,673,000 at June 30, 2011. The fair value is approximately $461,280,000 at June 30, 2011.

Net Assets

Net assets are categorized as “invested in capital assets, net of related debt,” “restricted -

expendable,” “restricted - nonexpendable,” and “unrestricted.” Invested in capital assets, net of

related debt is intended to reflect the portion of net assets that are associated with non liquid

capital assets, less outstanding balances due on borrowings used to finance the purchase or

construction of those assets. Restricted net assets have restrictions placed on the use of net

assets through external constraints imposed by contributors. Restricted – nonexpendable net

assets are those that have been restricted by donors to be maintained by Shands in perpetuity.

Restricted – expendable net assets are those whose use by Shands has been limited by donors to

a specific time period or purpose. Unrestricted net assets are net assets that do not meet the

definition of invested in capital assets, net of related debt and have no third-party restrictions on

use.

Operating Revenues and Expenses

Shands' consolidated basic statement of revenues, expenses and changes in net assets

distinguishes between operating and nonoperating revenues and expenses. Operating revenues

result from exchange transactions associated with providing health care services, Shands' principal

activity. State appropriations, net investment income, interest expense, and gain on disposal of

assets are reported as nonoperating revenues (expenses). Donations received for the purpose of

acquiring or constructing capital assets are recorded below nonoperating revenues as capital

contributions. Operating expenses are all expenses incurred to provide health care services,

excluding financing costs.

Net Patient Service Revenue and Patient Accounts Receivable

Shands has agreements with third-party payors that provide for payments to Shands at amounts

different from its established rates. Payment arrangements include prospectively determined rates

per discharge, reimbursed costs, discounted charges, and per diem payments. Net patient service

revenue and patient accounts receivable are reported at estimated net realizable amounts from

patients, third-party payors, and others for services rendered and include estimated retroactive

revenue adjustments due to future audits, reviews, and investigations. Retroactive adjustments are

considered in the recognition of revenue on an estimated basis in the period the related services

are rendered, and such amounts are adjusted in future periods as adjustments become known or

as years are no longer subject to such audits, reviews, and investigations. For the year ended

June 30, 2011, net patient service revenue increased approximately $13,676,000 due to such

adjustments.

Laws and regulations governing the Medicare and Medicaid programs are extremely complex and

subject to interpretation. As a result, there is at least a reasonable possibility that recorded

estimates will change by a material amount in the near term.


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Medicare

Shands participates in the federal Medicare program ("Medicare"). Approximately 31% of Shands’

net patient service revenue in fiscal year 2011 was derived from services to Medicare beneficiaries.

Inpatient acute care services rendered to Medicare beneficiaries are reimbursed at prospectively

determined rates per discharge. These rates vary according to a patient classification system that

is based on clinical, diagnostic, and other factors.

Inpatient non-acute services, outpatient services, and defined capital costs related to Medicare

beneficiaries are reimbursed based upon a prospective reimbursement methodology. Shands is

paid for cost-reimbursable items at a tentative rate with final settlement determined after

submission of annual cost reports by Shands and audits by the Medicare fiscal intermediary.

Shands' classification of patients under the Medicare program and the appropriateness of their

admission are subject to an independent review. As of June 30, 2011, the Medicare cost reports

were final settled by Shands' Medicare fiscal intermediary through June 30, 2006.

It is management’s opinion that settlements of outstanding Medicare cost reports, when received,

will not vary materially from the estimated amounts, which are recorded as current liabilities in the


Medicaid

Approximately 22% of Shands' net patient service revenue for fiscal year 2011 was derived under

the Medicaid program. Inpatient and outpatient services rendered to Medicaid program

beneficiaries are paid based upon a cost reimbursement methodology subject to certain ceilings.

Shands is reimbursed at a tentative rate with final settlement determined after submission of

annual cost reports by Shands, and audits by the Medicaid fiscal intermediary. The Medicaid cost

reports have been audited by the Medicaid fiscal intermediary through June 30, 2005. In addition

to the tentative payments received by Shands for the provision of health care services to Medicaid

beneficiaries, the State of Florida provides supplemental Medicaid and disproportionate share

payments to reflect the additional costs associated with treating the Medicaid population in Florida.

These amounts are reflected in net patient service revenue in the accompanying consolidated

basic statement of revenue, expenses and changes in net assets.

Shands Medicaid interim rates are based on the most recent “as filed” Medicare/Medicaid cost

report. The rates used in 2011 were based on the unaudited cost report for 2009.

It is management’s opinion that settlements of outstanding Medicaid cost reports, when received,

will not vary materially from the estimated amounts, which are recorded as current liabilities in the


Other Third-Party Payors

Shands has also entered into reimbursement agreements with certain commercial insurance

carriers, health maintenance organizations, and preferred provider organizations. The basis for

reimbursement under these agreements includes prospectively determined rates per discharge,

discounts from established charges and prospectively determined per diem rates.


22

Provision for Bad Debts and Allowance for Uncollectible Accounts

The provision for bad debts is based on management’s assessment of historical and expected net

collections, considering business and economic conditions, trends in federal and state

governmental health care coverage, and other collection indicators. Throughout the year,

management assesses the adequacy of the allowance for uncollectible accounts based upon these

trends. The results of this review are then used to make any modification to the provision for bad

debts to establish an appropriate allowance for uncollectible accounts. Patient accounts receivable

are written off after collection efforts have been followed under Shands’ policies.

Risk Management

Shands is exposed to various risks of loss from torts; theft of, damage to, and destruction of assets;

business interruption; errors and omissions; employee injuries and illnesses; natural disasters;

medical malpractice; and employee health, dental, and accident benefits. Commercial insurance

coverage is purchased for claims arising from such matters in excess of self-insured limits. Settled

claims have not exceeded this commercial coverage in 2011.

Effective July 1, 2011, Shands was granted sovereign immunity under the provision of Chapter

2011-114, Laws of Florida. As such, recovery in tort actions arising subsequent to June 30, 2011

will be limited to $100,000 for any one person for one incident and all recovery related to one

incident is limited to a total of $200,000. Effective October 1, 2011, the limits increase to $200,000

for any one person for one incident and $300,000 in total for one incident.

Derivative Financial Instruments

Shands’ derivative financial instruments consist of interest rate swaps, which are utilized by

Shands to manage net exposure to interest rate changes associated with its variable rate debt and

to lower its overall borrowing costs. Shands accounts for its derivative financial instruments under

GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments (“GASB

No. 53”). GASB No. 53 addresses the recognition, measurement, and disclosure of information

regarding derivative instruments entered into by state and local governments (Note 7). Shands

entered into the floating to fixed interest rate swap agreements to reduce the market risk

associated with the changes in interest rates related to Shands' revenue bonds. For those interest

rate swaps that qualify for hedge accounting, as they are highly effective in offsetting changes to

expected future cash flows on interest payments, changes in the fair value of the interest rate swap

agreement are considered to be deferred inflows or outflows. Deferred outflows related to hedging

instruments are recorded in other assets while deferred inflows related to hedging instruments are

recorded in other liabilities within the consolidated basic statement of net assets. Changes in fair

value of interest rate swaps that do not qualify for hedge accounting are included within net

investment income in the accompanying consolidated basic statement of revenues, expenses and

changes in net assets.

Future Accounting Pronouncements

In June 2011, the GASB issued GASB Statement No. 63, Financial Reporting of Deferred Outflows

of Resources, Deferred Inflows of Resources, and Net Position ("GASB No. 63"). GASB No. 63

improves financial reporting by standardizing the presentation of deferred outflows of resources

and deferred inflows of resources and their effects on a government’s net position. It alleviates

uncertainty about reporting those financial statement elements by providing guidance where none

previously existed. The provisions of GASB No. 63 are effective for financial statements for periods

beginning after December 15, 2011. Shands did not adopt GASB No. 63 for the year ended

June 30, 2011.


23

In June 2011, the GASB issued GASB Statement No. 64, Derivative Instruments: Application of

Hedge Accounting Termination Provisions ("GASB No. 64"), an amendment of GASB No. 53.

GASB No. 64 clarifies whether an effective hedging relationship continues after the replacement of

a swap counterparty or a swap counterparty’s credit support provider. GASB No. 64 sets forth

criteria that establish when the effective hedging relationship continues and hedge accounting

should continue to be applied. The provisions of GASB No. 64 are effective for financial statements

for periods beginning after June 15, 2011. Shands did not adopt GASB No. 64 for the year ended

June 30, 2011.

3. Unsponsored Community Benefit

Community benefit is a planned, managed, organized, and measured approach to a health care

organization’s participation in meeting identified community health needs. It implies collaboration

with a “community” to “benefit” its residents, particularly the poor and other underserved groups, by

improving health status and quality of life. Community benefit projects and services are identified

by health care organizations in response to findings of a community health assessment, strategic

and/or clinical priorities, and partnership areas of attention.

Community benefit categories include financial assistance, community health services, health

professions education, research, and donations. Shands has a long history of providing community

benefits and has quantified these benefits using national guidelines developed by the Catholic

Health Association in collaboration with the Voluntary Hospital Association.

Shands has policies providing financial assistance for patients requiring care but who have limited

or no means to pay for that care. These policies provide free or discounted health and health-

related services to persons who qualify under certain income and asset criteria. Because Shands

does not pursue collection of amounts determined to qualify for financial assistance, they are not

reported as net patient service revenue. Shands maintains records to identify and monitor the level

of financial assistance it provides. Charges foregone for services provided under Shands’ financial

assistance policy as a percentage of total charges for the year ended June 30, 2011 was

approximately 5.2%.

In addition to financial assistance, Shands provides benefits for the broader community. The cost

of providing these community benefits can exceed the revenue sources available. Examples of the

benefits provided by Shands and general definitions regarding those benefits are described below:

Community health services include activities carried out to improve community health. They

extend beyond patient care activities and are usually subsidized by the health care

organization. Examples include community health education, counseling and support

services, and health care screenings.

Health professions education includes education provided in clinical settings such as

internships and programs for physicians, nurses, and allied health professionals. It also

includes scholarships for health professional education related to providing community health

improvement services and specialty in-service programs to professionals in the community.

Research includes studies on health care delivery, unreimbursed studies on therapeutic

protocols, evaluation of innovative treatments, and research papers prepared for professional

journals.

Donations include funds and in-kind services benefiting the community-at-large.


24

Shands’ valuation of unsponsored community benefits at cost for the year ended June 30, 2011 is

as follows:


Financial assistance provided 49,790$

Government support applied to charity care (11,240)

Net unreimbursed financial assistance 38,550

Benefits for the broader community

Community health services 1,501

Health professions education 30,794

Research 10,577

Donations 2,550

Total quantifiable benefits for the broader community 45,422

Total unsponsored community benefits 83,972$

The cost of financial assistance provided was determined by applying Shands’ overall cost to

charge ratio to total charges foregone. Cost of benefits for the broader community represents

actual expenses incurred.

Shands also plays a leadership role in the communities it serves by providing additional community

benefits that have not been quantified. This role includes serving as a state designated Level I

trauma center in Gainesville, Florida. Shands also maintains air ambulance services at its trauma

center, as well as a regional burn intensive care unit in Gainesville, Florida to help meet the

emergency needs of citizens. Other specialty services provided at Shands’ facilities include a

transplant center of excellence for adult and pediatric patients in several disciplines

including: heart, lung, liver, kidney, pancreas, and bone morrow. In addition, Shands provides

specialized pediatric services including several levels of neonatal intensive care, pediatric intensive

care, pediatric open heart and cardiac catheterization.

In addition to the community benefits described above, Shands provides additional benefits to the

community through advocacy of community service by employees. Shands employees serve

numerous organizations through board representation, in-kind and direct donations, fund-raising,

youth sponsorship, and other related activities.


25

4. Investments and Assets Whose Use is Restricted

The composition of investments and assets whose use is restricted at June 30, 2011 is as follows:


Fair Less Than More Than

Value 1 Year 1–5 Years 6–10 Years 10 Years N/A

Commercial paper and money

market funds 2,460$ 2,460$ -$ -$ -$ -$

Florida Treasury Investment Pool (SPIA) 65,416 - 65,416 - - -

Fixed income mutual funds 39,963 7,687 - 32,276 - -

Florida Global Fixed Income Fund, LLC 73,739 - - - - 73,739

Florida Global Equity Fund, LLC 99,518 - - - - 99,518

Florida Hedged Strategies Fund, LLC 20,476 - - - - 20,476

Guaranteed Investment Contract (GIC) 16,433 16,433 - - - -

Collateral on deposit with swap counterparty 8,111 8,111 - - - -

Pantheon USA Fund V, L.P. 4,117 - - - - 4,117

Other investments 834 - - 98 - 736

331,067$ 34,691$ 65,416$ 32,374$ -$ 198,586$

Investment Maturities

Shands has an investment management agreement with the University of Florida Investment

Corporation ("UFICO") to manage a portion of its investments. UFICO was created by the

University of Florida Trustees for the purpose of managing assets held by UF and its related

corporations. As of June 30, 2011, a portion of Shands’ investments managed by UFICO are

invested in the Florida Global Equity Fund, LLC, Florida Global Fixed Income Fund, LLC, and

Florida Hedged Strategies Fund, LLC. Shands can redeem 90% of the limited liability company

(“LLC”) investments with 45 days notice, and under certain conditions including liquidity needs, can

redeem all of its LLC investments with three business days notice.

Assets whose use is restricted include amounts internally designated by the Board of Directors and

amounts held by trustees and swap counterparty with external restrictions and are comprised of the

following at June 30, 2011:


Internally designated by the Board of Directors for:

Capital improvements and debt service 185,501$

Other health programs 5,745

Other post-employment benefits 2,473

Held by counterparty under swap agreements 8,111

Held by trustees under indenture agreements 20,295

222,125

Less: Current portion (20,311)

Long-term portion 201,814$

Investment Risk Factors

There are many factors that can affect the value of investments. Some, such as concentration of

credit risk, custodial credit risk, interest rate risk and foreign currency risk may affect both equity

and fixed income securities. Equity securities respond to such factors as economic conditions,

individual company earnings performance and market liquidity, while fixed income securities may

be sensitive to credit risk and changes in interest rates.


26

Credit Risk

This is the risk that an issuer or other counterparty to an investment will not fulfill its obligations.

Shands investment policy provides guidelines for its fund managers and lists specific allowable

investments. The policy provides for the utilization of varying styles of managers so that portfolio

diversification is maximized and total portfolio efficiency is enhanced.

The credit risk profile of Shands’ investments and assets whose use is restricted as of June 30,

2011 is as follows:


Fair

Value AAA AA Af N/A

Commercial paper and money

market funds 2,460$ 1,406$ 1,054$ -$ -$

Florida Treasury Investment Pool (SPIA) 65,416 - - 65,416 -

Fixed income mutual funds 39,963 - - - 39,963

Florida Global Fixed Income Fund, LLC 73,739 - - - 73,739

Florida Global Equity Fund, LLC 99,518 - - - 99,518

Florida Hedged Strategies Fund, LLC 20,476 - - - 20,476

Guaranteed Investment Contract (GIC) 16,433 - - - 16,433

Collateral on deposit with swap counterparty 8,111 - - - 8,111

Pantheon USA Fund V, L.P. 4,117 - - - 4,117

Other investments 834 - - - 834

331,067$ 1,406$ 1,054$ 65,416$ 263,191$

Ratings

Concentration of Credit Risk

Investments in any one issuer that represent 5% or more of Shands' investment portfolio are

required to be disclosed. Investments issued or explicitly guaranteed by the U.S. government and

investments in mutual funds, external investment pools, and other pooled investments are

excluded from this requirement. As of June 30, 2011, Shands did not have any investments that

equaled or exceeded this threshold.

Custodial Credit Risk

As of June 30, 2011, Shands' investments were not exposed to custodial credit risk since the full

amount of investments were insured, collateralized, or registered in Shands' name.

Interest Rate Risk

Shands does not have a formal investment policy that limits investment maturities as a means of

managing its exposure to fair value losses arising from increasing interest rates. Refer to the

distribution of Shands' investment in fixed income securities by maturity as of June 30, 2011.

Investment income, net for the year ended June 30, 2011 is as follows:


Dividends, interest and other income 7,314$

Realized gains, net 10,332

Net increase in the fair value of investments 19,820

Net increase in the fair value of derivative instruments 2,942

Loss on partial termination of a derivative instrument (3,357)

Net investment income 37,051$


27

5. Capital Assets

A summary of changes in capital assets during fiscal year 2011 is as follows:

(in thousands of dollars) Balance at Disposals Balance at

June 30, and June 30,

2010 Additions Transfers 2011

Land 43,829$ 1,749$ -$ 45,578$

Buildings and leasehold improvements 760,663 4,588 (129) 765,122

Equipment 373,361 36,380 (12,892) 396,849

Totals at historical cost 1,177,853 42,717 (13,021) 1,207,549

Less: Accumulated depreciation for

Buildings and leasehold improvements (206,011) (22,748) 108 (228,651)

Equipment (257,203) (29,200) 11,788 (274,615)

(463,214) (51,948) 11,896 (503,266)

Construction-in-progress 9,849 27,211 (8,875) 28,185

Capital assets, net 724,488$ 17,980$ (10,000)$ 732,468$

Depreciation and amortization expense was approximately $51,948,000 for the year ended

June 30, 2011. Amortization expense on equipment held under capital lease which is included

within depreciation and amortization in the accompanying consolidated basic statement of

revenues, expenses and changes in net assets was approximately $877,000 for the year ended

June 30, 2011. Interest costs capitalized were approximately $638,000 for the year ended June 30,

2011. Construction-in-progress at June 30, 2011 mainly related to costs incurred for a new

electronic medical records system. Shands has contracts for the construction and remodeling of

facilities and equipment purchases. Estimated costs to complete the installation of the projects

was approximately $51,167,000 at June 30, 2011.


28

6. Long-Term Debt

Long-term debt is comprised of the following at June 30, 2011:


Health Facilities Revenue Bonds

Series 1996A, final maturity December 2016 14,805$

Series 2007A, final maturity December 2037 100,395

Series 2007B, final maturity December 2037 35,000

Series 2008A, final maturity December 2037 75,000


Series 2008C, final maturity October 2028 65,625

Series 2008D1, final maturity December 2023 21,715

Series 2008D2, final maturity December 2030 22,625

Series 2010A, final maturity July 2025 67,613


489,713

Installment debt, final maturity November 2013 8,350

498,063

Less: Net unamortized bond premium 610

Total long-term debt 498,673

Less: Current portion (20,834)

Long-term portion 477,839$

Changes in Shands’ long-term debt, excluding unamortized discounts or premiums were as

follows:

(in thousands of dollars) Balance at Balance at Amounts

June 30, June 30, Due Within

2010 Additions Reductions 2011 One Year

Health Facilities Revenue Bonds

Series 1996A, final maturity December 2016 16,790$ -$ (1,985)$ 14,805$ 2,110$

Series 2007A, final maturity December 2037 100,395 - - 100,395 -

Series 2007B, final maturity December 2037 35,000 - - 35,000 -

Series 2008A, final maturity December 2037 75,000 - - 75,000 -

Series 2008B, final maturity December 2037 50,000 - - 50,000 -

Series 2008C, final maturity October 2028 69,375 - (3,750) 65,625 3,750

Series 2008D1, final maturity December 2023 21,715 - - 21,715 -

Series 2008D2, final maturity December 2030 22,625 - - 22,625 -

Series 2010A, final maturity July 2025 70,000 - (2,387) 67,613 3,182

Series 2010B, final maturity December 2015 44,685 - (7,750) 36,935 7,820

Health Facilities Revenue Note

Series 2000, final maturity December 2010 500 - (500) - -

Installment debt, final maturity November 2013 - 8,850 (500) 8,350 3,550

Total long-term debt 506,085$ 8,850$ (16,872)$ 498,063$ 20,412$

The current portion of net unamortized bond premium was approximately $422,000 as of June 30,

2011.


29

Maturities of long-term debt including corresponding interest, over the next five years and in five-

year increments thereafter are as follows:


Year Ending Debt Service Debt Service

June 30 Principal Interest

2012 20,412$ 8,752$

2013 18,132 8,373

2014 19,102 7,852

2015 18,422 7,169

2016 19,017 6,457

2017-2021 62,749 27,375

2022-2026 75,899 19,302

2027-2031 82,340 11,943

2032-2036 121,830 4,129

2037-2038 60,160 403

498,063$ 101,755$

Shands has entered into a Master Trust Indenture with U.S. Bank, National Association (“U.S.

Bank”) which serves as the primary financing document for Shands and its subsidiaries, excluding

ElderCare, joint ventures and the Foundation. During 2007, Shands amended the Master Trust

Indenture and pledged a security interest in its gross revenues on Shands' debt obligations. The

Master Trust Indenture provides for specific restrictive covenants, including a debt service

coverage requirement. Shands was in compliance with all such restrictive covenants as of

June 30, 2011.

Series 1996A Health Facilities Revenue Bonds

In 1996, the Alachua County Health Facilities Authority issued the Series 1996A Health Facilities

Revenue Bonds (“Series 1996A Bonds”) on behalf of Shands. The proceeds of the Series 1996A

Bonds were used to finance capital improvement projects and pay related issuance costs.

The Series 1996A Bonds are fixed rate bonds, which are collateralized by the unconditional and

irrevocable guarantee of the Municipal Bond Investors Assurance Corporation and have a

termination date which is coterminous with the Series 1996A Bonds. The interest rate on the

Series 1996A Bonds is 6.25% and is payable semiannually. The Series 1996A Bonds are covered

under the Master Trust Indenture with U.S. Bank.

Series 2007A Health Facilities Revenue Bonds and Series 2007B Health Facilities Revenue

Refunding Bonds


Revenue Bonds (“Series 2007A Bonds”) and the Series 2007B Health Facilities Revenue Bonds

(“Series 2007B Bonds”) on behalf of Shands. The proceeds of the Series 2007A Bonds were used

to finance capital improvement projects and pay costs associated with the issuance of the Series

2007A Bonds. The proceeds of the Series 2007B Bonds were used to partially refund outstanding

principal of the Series 1996A Health Facilities Revenue Bonds and to pay costs associated with the

issuance of the Series 2007B Bonds.


30

The Series 2007A Bonds and Series 2007B Bonds are variable index rate bonds. The Series

2007A Bonds and Series 2007B Bonds maturing on or after June 1, 2017 are redeemable at

Shands’ option at par value. The interest rate on the bonds is reset quarterly and the interest rate

was 1.04% at June 30, 2011. The Series 2007A Bonds and Series 2007B Bonds are covered

under the Master Trust Indenture with U.S. Bank.

Series 2008A and 2008B Health Facilities Revenue Bonds


Revenue Bonds (“Series 2008A Bonds”) and the Series 2008B Health Facilities Revenue Bonds

(“Series 2008B Bonds”) on behalf of Shands. The proceeds of the Series 2008A Bonds and Series

2008B Bonds were used to retire the Series 2007C Bonds and Series 2007D Bonds.

The Series 2008A Bonds and Series 2008B Bonds are variable rate bonds issued in the Unit

Pricing Mode. Interest periods range from 1 to 270 days. The weighted average interest rate on

the Series 2008A Bonds and the Series 2008B Bonds was 0.22% at June 30, 2011. The Series

2008A Bonds and Series 2008B Bonds are backed by a bank letter of credit for approximately

$126,798,000 that expires in July 2013 with an option for extension. There were no amounts

outstanding under this letter of credit at June 30, 2011. The Series 2008A Bonds and Series

2008B Bonds are redeemable at the option of Shands at par value plus accrued interest at any

interest payment date. The Series 2008A Bonds and Series 2008B Bonds are covered under the

Master Trust Indenture with U.S. Bank.

Series 2008C Health Facilities Revenue Bonds

In 2008, the Alachua County Health Facilities Authority issued the Series 2008C Health Facilities

Revenue Bonds (“Series 2008C Bonds”) on behalf of Shands. The proceeds of the Series 2008C

Bonds were used to refund the Series 1996B Bonds and pay related costs of issuance.

The Series 2008C Bonds are variable rate bonds based upon 65% of the London Interbank Offered

Rate (“LIBOR”) plus 1.30%. The interest rate on the Series 2008C Bonds was 1.42% at June 30,

2011. The Series 2008C Bonds are covered under the Master Trust Indenture with U.S. Bank.

Series 2008D1 and 2008D2 Health Facilities Revenue Bonds

In 2008, the Alachua County Health Facilities Authority issued the Series 2008D1 Health Facilities

Revenue Bonds (“Series 2008D1 Bonds”) and the Series 2008D2 Health Facilities Revenue Bonds

(“Series 2008D2 Bonds”) on behalf of Shands. The proceeds of the Series 2008D1 Bonds and

Series 2008D2 Bonds were used to refund a portion of the Series 2007A Bonds.

The Series 2008D1 Bonds and Series 2008D2 Bonds are unenhanced fixed rate bonds. Interest

rates on the Series 2008D1 Bonds and Series 2008D2 Bonds range from 6.25% to 6.75% and are

payable semiannually. The Series 2008D1 Bonds and Series 2008D2 Bonds maturing on or after

December 1, 2018 are redeemable at Shands’ option at par value. The Series 2008D1 Bonds and

Series 2008D2 Bonds are covered under the Master Trust Indenture with U.S. Bank.

Series 2010A Health Facilities Revenue Bonds


Revenue Bonds (“Series 2010A Bonds”) on behalf of Shands. The proceeds of the Series 2010A

Bonds were used to finance capital improvement projects and pay related costs of issuance.

The Series 2010A Bonds are variable rate bonds based upon 65% of LIBOR plus 1.105%. The

interest rate on the Series 2010A Bonds was 1.29% at June 30, 2011. The Series 2010A Bonds

are covered under the Master Trust Indenture with U.S. Bank.


31

Series 2010B Health Facilities Revenue Bonds

In 2010, the Alachua County Health Facilities Authority issued the Series 2010B Health Facilities

Revenue Bonds (“Series 2010B Bonds”) on behalf of Shands. The proceeds of the Series 2010B

Bonds were used to defease the Series 1992R Bonds.

The Series 2010B Bonds are unenhanced fixed rate bonds. Interest rates on the Series 2010B

Bonds range from 3.00% to 5.00% and are payable semiannually. The Series 2010B Bonds are

covered under the Master Trust Indenture with U.S. Bank.

Cash paid for interest, net of amounts capitalized, was approximately $17,462,000 for the year

ended June 30, 2011.

7. Interest Rate Swaps

On June 30, 2011, Shands had the following derivative instruments outstanding:


Shands Counterparty

Notional Notional Effective Maturity Fair

Item Type Objective Amount Amount Date Date Terms Value

1996B Fixed rate

payer

interest

rate swap

Hedge of changes

in cash flows on the

Series 1996B

Revenue Bonds

refinanced in 2008

75,000$ 75,000$ 7/03/2003 12/01/2026 Pay fixed rate of 3.175%.

Receive 67% of one month

LIBOR.

(6,580)$

1996B Fixed rate

receiver

interest

rate swap

Hedge of changes


1996B fixed rate

payer interest rate

swap

75,000$ 75,000$ 6/03/2009 12/01/2026 Pay SIFMA Municipal Swap

Index rate. Receive fixed

rate of 3.40%.

4,678$

2007A Fixed rate

payer

interest

rate swap

Hedge of changes


Series 2007A

Revenue Bonds

100,395$ 100,395$ 3/30/2007 12/01/2037 Pay fixed rate of 4.349%.

Receive 67% of three

month LIBOR plus 87 basis

points.

(13,140)$

2007B Fixed rate

payer

interest

rate swap

Hedge of changes


Series 2007B

Revenue Bonds

35,000$ 35,000$ 3/30/2007 12/01/2037 Pay fixed rate of 4.349%.

Receive 67% of three

month LIBOR plus 87 basis

points.

(4,459)$

2007A Total return

interest

rate swap

Hedge of changes


Series 2007A

Revenue Bonds


Index rate plus 100 basis

points. Receive 67% of

three month LIBOR plus 87

basis points.

680$

2007B Total return

interest

rate swap

Hedge of changes


Series 2007B

Revenue Bonds


Index rate plus 100 basis

points. Receive 67% of

three month LIBOR plus 87

basis points.

923$

2008A Fixed rate

payer

interest

rate swap

Hedge of changes

in cash flows on a

portion of the Series

2008A Revenue

Bonds

50,000$ 50,000$ 11/07/2007 12/01/2037 Pay fixed rate of 3.538%.


LIBOR.

(7,053)$

2008C Fixed rate

payer

interest

rate swap

Hedge of changes


Series 2008C

Revenue Bonds

65,625$ 65,625$ 11/05/2008 10/02/2028 Pay fixed rate of 4.18%.


LIBOR plus 130 basis

points.

(4,278)$


32

During the year ended June 30, 2011, the fixed rate 2007A, 2007B, 2008A and 2008C interest rate

swaps qualified for hedge accounting under GASB No. 53. At June 30, 2011, approximately

$6,281,000 and $35,510,000 related to the fair value of interest rate swaps is recorded in other

assets and other liabilities, respectively, in the accompanying consolidated basic statement of net

assets.

The fair values of the fixed rate payer and fixed rate receiver interest rate swaps are estimated

using the zero-coupon discounting method. This method calculates the future payments required

by the swap, assuming that the current forward rates implied by the yield curve are the market’s

best estimate of future spot interest rates. These payments are then discounted using the spot

rates implied by the current yield curve for a hypothetical zero-coupon rate bond due on the date of

each future net settlement payment on the swaps. The fair values of the 2007A and 2007B total

return swaps are estimated using a forecast of expected discounted cash flows assuming that the

forward rates would be similar to the rates for a healthcare credit rating similar to Shands.

Credit Risk

Shands has sought to limit its counterparty risk by contracting only with highly rated entities. As of

June 30, 2011, the credit ratings for the counterparty of all of the swap agreements with the

exception of the 2008C swap agreement were A2/A, and the credit ratings for the counterparty of

the 2008C interest rate swap agreement was A3/A. The counterparty for all of the swap

agreements with the exception of the 2008C swap agreement may be required to post collateral

should it fail to meet certain minimum credit ratings.

Interest Rate Risk

Shands is not exposed to interest rate risk on all of its fixed rate payer interest rate swap

agreements as they are structured in a receive variable, pay fixed rate mode. The 1996B fixed

receiver swap is structured in a receive fixed, pay variable rate mode. However, the 1996B fixed

receiver swap hedges the cash flows associated with the 1996B fixed payer swap. The 2007A and

2007B total return swaps are structured in a receive variable, pay variable rate mode and hedge

the cash flows associated with the Series 2007A and 2007B Bonds.

Basis Risk

Shands is exposed to basis risk on its 2008A fixed rate payer swap agreement because the

variable-rate payments received by Shands on the hedging derivative instrument is based on a rate

or index other than the interest rates that Shands pays on its hedged variable rate debt, which is

remarketed in varying amounts and at various dates. As of June 30, 2011, the weighted variable

interest rate on Shands hedged variable rate debt is 0.18%, while the swap index is 67% of one

month LIBOR or 0.12%.

Termination Risk

The interest rate swap agreements use the International Swap Dealers Association Master

Agreement, which includes standard termination events provisions, such as failure to pay and

bankruptcy.

Commitments

Several of Shands’ interest rate swap agreements require collateral to be posted if the fair value of

the interest rate swap is negative and meets certain thresholds. The threshold amount depends on

Shands unenhanced credit rating as determined by Standard & Poor's and Moody’s Investor

Services. Collateral in the amount of approximately $8,111,000 was required to be posted as of

June 30, 2011.


33

Swap Termination

Shands terminated a portion of the 2008A fixed payer interest rate swap in January 2011. The loss

recognized on the swap termination was approximately $3,357,000 which is included within net

investment income in the accompanying consolidated basic statement of revenues, expenses and

changes in net assets.

8. Retirement Benefit Plans

Defined Contribution Plans

Shands sponsors the Shands HealthCare Matched Savings Plan, which is a defined contribution

plan that covers eligible employees of Shands. Under the provisions of the plan, employees’

eligible contributions are matched by Shands at established rates. Contributions to the defined

contribution plan by Shands were approximately $5,640,000 for the year ended June 30, 2011.

Defined Benefit Pension Plan

Shands sponsors the Shands HealthCare Pension Plan (the “Plan”) which is a defined benefit

pension plan that covers eligible employees of Shands.

During April 2010, Shands’ Board of Directors approved an amendment to the Plan. Effective

July 1, 2011, Shands employees who were vested as of July 1, 2002 will begin to participate in the

Retirement Growth Account (account-based benefit) and will no longer accrue traditional plan

benefits. Employees who were not vested as of July 1, 2002 will continue to participate in the

Retirement Growth Account (account-based benefit). Effective July 1, 2010, new employees hired

by Shands will participate in the Shands HealthCare Matched Savings defined contribution plan.

Contribution Requirements and Contributions Made

The annual required contribution ("ARC") for the current year was determined as part of the

actuarial valuation using the projected unit credit actuarial cost method. The Plan’s funding policy

provides for actuarially determined periodic contributions so that sufficient assets will be available

to pay benefits when due. All contributions to the Plan are made by the employer and are intended

to fund both the actuarially determined costs, as well as the Plan’s operating costs. Shands’

practice is to make sufficient annual contributions in accordance with the actuarial funding

requirements. Annual required contributions to the Plan for fiscal year 2011 totaled approximately

$26,271,000. The contributions represent approximately 6.63% of current covered payroll for fiscal

year 2011. Total pension expense for the year ending June 30, 2011 totaled approximately

$30,201,000. As of June 30, 2011, Shands has a pension asset of approximately $82,021,000.

Pension expense is allocated to Shands’ facilities based on valuation of payroll.

Information regarding payroll and participant data used in the calculation of the current-year

actuarial information is as follows:

Covered payroll for the calculation of the 2011 actuarial information 396,053,964$

Participant data as of July 1, 2010 (date of most recent valuation)

Active 7,688

Retired 1,472

Terminated vested 3,812

12,972


34

The more significant actuarial assumptions utilized in the most recent actuarial valuation (April 1,

2011) for computing the annual required contributions for the Plan are as follows:

Assumed rate of return on investments 7.5% per year (net of expenses)

Mortality basis 2011 PPA separate static annuitant and

nonannuitant mortality tables

Amortization method Level dollar closed

Remaining amortization period 8 years

Asset valuation method Market value smoothed over 5 years

Termination Graduated rates from 20 to 50 are as follows:

Age <2 2–2.99 3 or more

20 38.5% 21.1% 21.0%

25 35.0% 20.0% 18.5%

30 31.8% 18.6% 17.0%

35 29.3% 17.1% 15.5%

40 27.4% 15.3% 14.0%

45 25.7% 13.8% 12.0%

50 24.2% 12.3% 10.0%

Age Percentage

20 16.7%

25 16.7%

30 13.3%

35 6.4%

40 5.9%

45 4.3%

50 3.6%

Table of Select Withdrawal Rates (Cash Balance Plan Benefits)

Withdrawal (Based on Years of Service)

Table of Select and Ultimate Withdrawal Rates (Traditional Plan Benefits)


35

Attained Traditional

Age Benefits Benefits

50 8.5% 1.5%

51 10.0% 1.7%

52 10.1% 1.9%

53 10.2% 2.0%

54 10.3% 2.0%

55 10.4% 3.5%

56 10.5% 3.5%

57 10.6% 3.5%

58 10.7% 3.5%

59 10.8% 5.0%

60 10.9% 5.0%

61 11.0% 20.0%

62 12.0% 35.0%

63 14.0% 25.0%

64 16.0% 25.0%

65 17.0% 35.0%

66 18.0% 30.0%

67 19.0% 50.0%

68 20.0% 50.0%

69 20.0% 50.0%

70+ 100.0% 100.0%

Cash Balance

Retirement Rates

Funding Status and Progress

Shands’ actuarial accrued liability (“AAL”) as of April 1, 2011 was approximately $628,782,000. The

actuarial value of the Plan assets available to pay these benefits at April 1, 2011 was

approximately $625,296,000, leaving a deficit as compared to the AAL of approximately

$3,486,000 at April 1, 2011. The AAL and the actuarial value of Plan net assets for the current

year are based upon the April 1, 2011 actuarial valuation. The schedules of Plan funding progress,

presented as required supplementary information (“RSI”) following the notes to the consolidated

basic financial statements, present multiyear trend information about whether the actuarial values

of Plan assets are increasing or decreasing over time relative to the AAL for benefits.

The funded status of the Plan as of April 1, 2011, the most recent actuarial valuation date, is as

follows:

UAAL as a

Actuarial AAL Unfunded Percentage

Actuarial Value of (Projected AAL Funded Covered of Covered

Valuation Assets Unit Credit) ("UAAL") Ratio Payroll Payroll

Date (a) (b) (b-a) (a/b) (c) (b-a)/(c)

April 1, 2011 625,296,308$ 628,781,832$ 3,485,524$ 99.45% 396,053,964$ 0.88%

The present value of accumulated plan benefits is computed to measure the funds required as of

the valuation date to provide in full the benefits earned to date by all Plan participants. As of

April 1, 2011, the present value of accumulated Plan benefits was approximately $620,097,000.


36

Trend Information

This information gives an indication of the progress made in accumulating sufficient assets to pay

benefits when due. The trend information for each of the last three fiscal years is as follows:

April 1, July 1, July 1,

2011 2010 2009

(Unaudited) (Unaudited)

Net assets available for benefits as a percentage of the AAL 99.45% 95.74% 94.72%

Unfunded actuarial accrued liability as a percentage of

covered payroll 0.88% 5.97% 6.88%

Annual required contributions as a percentage of

covered payroll 6.63% 5.67% 4.90%

Showing unfunded pension benefit obligation as a percentage of annual covered payroll

approximately adjusts for the effects of inflation for analysis purposes. For the three fiscal years

presented, contributions to the Plan were made in accordance with actuarially determined

requirements.

A summary of annual pension cost, contribution information, and the change in the net pension

obligation for the last three fiscal years is as follows:

2011 2010 2009

(Unaudited) (Unaudited)

Annual required contribution 26,271,142$ 23,308,692$ 20,129,673$

Interest on net pension obligation (3,210,346) (3,098,257) (2,969,610)

Adjustment to annual required contribution 7,140,114 3,414,877 3,273,083

Annual pension cost 30,200,910 23,625,312 20,433,146

Contributions made by Shands (70,798,000) (27,494,500) (21,992,500)

Decrease in net pension obligation (40,597,090) (3,869,188) (1,559,354)

Net pension (asset) obligation

Beginning of year (41,423,818) (37,554,630) (35,995,276)

End of year (82,020,908)$ (41,423,818)$ (37,554,630)$

Percentage of annual pension cost contributed 234.4% 116.4% 107.6%

The net pension asset of approximately $82,021,000 is included within other assets in the



37

A summary of Plan assets as of June 30, 2011 and of the changes in Plan assets for fiscal year

2011 is as follows:


Statement of Plan Net Assets

Cash and short-term investments 2,404$

Investments at fair value

Domestic equity funds and securities 197,710

International equity funds and securities 192,593

Fixed income funds 157,332

High yield fund 50,884

Private equity 27,667

Total investments 626,186

Net assets held in trust for pension benefits 628,590$


Statement of Changes in Plan Net Assets

Beginning investment value of account 467,433$

Receipts

Employer contributions 70,798

Realized and unrealized gains, net 105,385

Interest and dividends 14,504

Total receipts 190,687

Disbursements

Benefit payments 25,243

Investment management and administrative fees 4,287

Total disbursements 29,530

Ending investment value of account 628,590$

9. Other Postemployment Benefits

In addition to providing pension benefits, Shands provides certain health care benefits for

approximately 1,187 eligible active and retired employees through the Shands HealthCare Health

Plan (“Health Benefit Plan”). Many of Shands’ employees may become eligible for those benefits if

they reach retirement age while working for Shands.


38

The GASB requires state and local governmental employers to account for and report the annual

cost of other postemployment benefits ("OPEB") and the outstanding obligations and commitments

related to OPEB in essentially the same manner as they currently do for pensions. Annual OPEB

cost will be based on actuarially determined amounts that, if paid on an ongoing basis, generally

would provide sufficient resources to pay benefits as they become due. The GASB's provisions

may be applied prospectively and do not require governments to fund their OPEB plans. The

actuarially determined cost for providing benefits to retirees and current employees during fiscal

year 2011 was approximately $323,000. This includes approximately $146,000 of actual payments

(contributions) during fiscal year 2011, and approximately $177,000 of additional expense recorded

on the accrual basis.

Funding Policy

The GASB does not require funding of the OPEB expense. The ARC is based on projected pay-

as-you-go financing requirements, with an additional amount required to be recognized and

accumulated as the net OPEB obligation. For fiscal year 2011, Shands contributed approximately

$146,000 to the plan, which is net of retiree contributions. Retiree contributions for fiscal year 2011

were approximately $263,000 according to the following table:

Average annual retiree contributions (pre and

post Medicare)

Retiree Spouse/Family

Preferred Plan 8,606$ 10,840$

Basic Plan 6,221 7,695

Limited Plan 4,833 5,865

Annual

OPEB Cost and Net OPEB Obligation – Shands’ annual OPEB cost is calculated based on its

ARC, an amount actuarially determined in accordance with the GASB parameters. The ARC

represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost

each year and amortize any unfunded actuarial liabilities (or funding excess) over an 8 year period.

The components of Shands’ annual OPEB cost for the year, the amount actually contributed to the

plan, and changes in Shands’ net OPEB obligation as of June 30, 2011 are as follows:

Annual required contribution 447,254$

Interest on net OPEB obligation 63,100

Adjustment to annual required contribution (187,846)

Annual OPEB cost 322,508

Contributions made (146,133)

Increase in net OPEB obligation 176,375

Net OPEB obligation

Beginning of year 1,201,914

End of year 1,378,289$


39

Shands’ annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the

net OPEB obligation for the last three fiscal years was as follows:

% of Annual Net

Annual OPEB Cost OPEB

Fiscal Year Ended OPEB Cost Contributed Obligation

June 30, 2011 322,508$ 45.3% 1,378,289$

June 30, 2010 (unaudited) 437,721 -4.4% 1,201,914

June 30, 2009 (unaudited) 420,623 -1.2% 744,866

Funded Status and Funding Progress

As discussed above, the GASB does not require, and Shands has not funded, the AAL. As of

April 1, 2011, the unfunded actuarial accrued liability ("UAAL") for benefits was approximately

$1,961,000. The covered payroll (annual payroll of active employees covered by the plan) was

approximately $396,054,000 and the ratio of the UAAL to the covered payroll was 0.50%.

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and

assumptions about the probability of occurrence of events far into the future. Examples include

assumptions about future employment, mortality, and the health care cost trend. Amounts

determined regarding the funded status of the plan and the annual required contributions of the

employer are subject to continual revision as actual results are compared with past expectations

and new estimates are made about the future. The schedule of funding progress, presented as

required supplementary information following the notes to the consolidated basic financial

statements, presents multiyear trend information about whether the actuarial value of plan assets is

increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

Actuarial Methods and Assumptions

Projections of benefits for financial reporting purposes are based on the substantive plan (the plan

as understood by the employer and the plan members) and include the types of benefits provided

at the time of each valuation and the historical pattern of sharing of benefit costs between the

employer and plan members to that point. The actuarial methods and assumptions used include

techniques that are designed to reduce the effects of short-term volatility in actuarial accrued

liabilities and the actuarial value of assets, consistent with the long-term perspective of the

calculations.

In the April 1, 2011 actuarial valuation, the projected unit credit method was used. The actuarial

assumptions included a 4.75% discount rate, representing an estimate of the discount rate for an

unfunded plan. The UAAL is being amortized as a level dollar base for a closed 8 year period.

The significant actuarial assumptions utilized in the most recent actuarial analysis are as follows:

Discount rate 4.75% per year

Retiree contribution increases Retiree contributions increases are calculated so that

the employer claim payments are capped at a 3%

increase each year.


40

Health care cost trend rates The trend rates of incurred claims represent the rate of

increase in employer claims payments:

Medical Annual Rates of Increase

Initial Trend Rate 7.70%

Ultimate Trend Rate 4.50%

Year that the rate reaches the ultimate trend rate 2028

10. Commitments and Contingencies

Lease Agreements

Shands entered into a contractual agreement as of July 1, 1980 with the State Board of Education

of the State of Florida (the “State Board of Education”), as subsequently restated and amended,

which provides for the use of hospital facilities (buildings and improvements) of the patient care and

clinical education unit of the J. Hillis Miller Health Center at the University of Florida (the “Health

Center”) through December 31, 2057, with renewal provisions. The contractual agreement also

provided for the transfer to Shands of all other assets and liabilities arising from the operation of the

Shands UF hospital facilities prior to July 1, 1980. At termination of the contractual agreement, the

net assets of the Shands UF hospital facility revert to the State Board of Education. Legal title to all

buildings and improvements transferred to Shands remains with the State of Florida during the

term of the contractual agreement. The contractual agreement provides for a 12-month grace

period for any event of default, other than the bankruptcy of Shands. In addition, the contractual

agreement limits the right of the State Board of Education to terminate the contractual agreement

solely to the circumstance when Shands declares bankruptcy and, in such event, requires net

revenue derived from the operation of the hospital facilities to continue to be applied to the

payment of Shands’ debts.

Under the terms of the contractual agreement, Shands is obligated to manage, operate, maintain,

and insure the hospital facilities in support of the programs of the Health Center, which include the

College of Medicine, and further agrees to contract with the State Board of Education for the

provision of these programs.

In May 2010, Shands entered into an agreement to sell a 60% controlling interest in its three rural

hospitals, Shands at Lake Shore, Shands Starke, and Shands Live Oak to Health Management

Associates, Inc. (“HMA”). The closing date of the sale was July 1, 2010. The lease agreement

between Shands at Lake Shore and the Lake Shore Hospital Authority was amended effective

July 1, 2010. Shands at Lake Shore assigned all of its interest in the lease to HMA Lakeshore, Inc.

Under the terms of the amended lease agreement, Shands provides a 40% guaranty and HMA

provides a 60% guaranty on the lease payments. Currently the monthly lease payments are

$39,922 and are subject to increases annually based upon the change in the Consumer Price

Index. The lease expires June 30, 2040.


41

The following is a schedule, by year, of future minimum lease payments under capital and

noncancelable operating leases together with the present value of net minimum capital lease

payments as of June 30, 2011:

(in thousands of dollars) Capital Operating

Years Ending Lease Leases

2012 941$ 4,892$

2013 941 3,813

2014 548 3,831

2015 - 2,736

2016 - 2,782

Thereafter - 9,636

Total minimum lease payments 2,430 27,690$

Less: Amount representing interest (110)

Present value of net minimum lease payments 2,320$

Operating lease expense for the rental of property and equipment for the year ended June 30,

2011 was approximately $5,963,000. Accumulated amortization on capital leases as of June 30,

2011 was approximately $1,242,000.

Commitments

Shands has contracts for the construction and remodeling of facilities, equipment purchases, and

maintenance of computer application software for its core operation systems. As of June 30, 2011,

the remaining commitment relating to these contracts was approximately $23,000,000.

Professional Liabilities

Shands participates with other health care providers in the University of Florida J. Hillis Miller

Health Center Self-Insurance Program (“UFSIP”). UFSIP is an operating unit of the Board of

Governors of the State of Florida (“FBOG”). UFSIP provides occurrence-based coverage to

Shands. Insurance in excess of the coverage provided by UFSIP is provided by the University of

Florida Healthcare Education Insurance Company (“UFHEIC”). UFHEIC is wholly-owned by

FBOG. UFHEIC provides coverage to Shands on a claims reported basis. UFHEIC obtains

reinsurance for a substantial portion of the insurance coverage that it provides to the participants in

its insurance program. The policies between UFSIP and UFHEIC and Shands are not

retrospectively rated. The costs incurred by Shands related to these policies are expensed in the

period that coverage is provided.

Shands could be subject to malpractice claims in excess of insurance coverage through UFSIP or

UFHEIC; however, the estimated potential loss, if any, cannot be estimated. Management of

Shands is not aware of any potential uninsured losses that could materially affect the financial

position of Shands.

Effective July 1, 2011, Shands was granted sovereign immunity (Note 2).


42

Health Insurance

Shands has a self-insurance plan for health and medical coverage for its employees. Amounts

contributed by Shands and its employees to the plan are determined by the level of benefits

coverage selected by each employee. Expense related to the self-insured health and medical plan

for the year ended June 30, 2011 was approximately $39,652,000. The estimated claims incurred,

payments on claims and the balance of the reserve for health insurance claims for the year ended

June 30, 2011 were as follows:


Amount of claims liabilities at the beginning of the year 12,502$

Incurred claims 45,137

Payments on claims attributable to events of both

the current fiscal year and prior fiscal years (50,046)

Amount of claims liabilities at the end of the year 7,593$

Workers’ Compensation Insurance

Shands is self-insured for workers’ compensation up to $500,000 per occurrence. Shands has

purchased excess coverage from a commercial carrier up to the amount allowed by Florida

Statutes. Total workers’ compensation expenses for the year ended June 30, 2011 were

approximately $543,000.

Litigation

Shands is involved in litigation arising in the normal course of business. After consultation with

legal counsel, management believes that these matters will be resolved without material adverse

effect on Shands’ future financial position or results of operations.

11. Transactions with Related Parties

Shands has various agreements for services provided by the University of Florida for support of the

educational, clinical, and research activities of the College of Medicine, maintenance, security,

utilities, and various services. Expenses related to these agreements were approximately

$142,088,000 for the year ended June 30, 2011, of which approximately $37,675,000 for the year

ended June 30, 2011 are transfers and expenditures in support of the University of Florida and its

medical programs included under this caption in the accompanying consolidated basic statement of

revenues, expenses and changes in net assets. At June 30, 2011, approximately $5,566,000 was

owed to the University of Florida under these agreements and is included in accounts payable and

accrued expenses in the accompanying consolidated basic statement of net assets.

Shands provides contracted services at cost to the University of Florida for support of the clinical

and research activities of the College of Medicine, maintenance, utilities, telephone communication,

and various other services. The amount credited against expenses for these contracted services

was approximately $56,653,000 for the year ended June 30, 2011. At June 30, 2011,

approximately $2,068,000 was owed to Shands under these agreements and is included in prepaid

expenses and other current assets in the accompanying consolidated basic statement of net

assets.


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Shands has an agreement with the University of Florida to provide billing services for emergency

room physician fees. The University of Florida remits the collections to Shands on a monthly basis

less an administrative fee. The amount collected by the University of Florida on Shands’ behalf

less the administrative fee for the year ended June 30, 2011 was approximately $7,673,000. At

June 30, 2011, approximately $517,000 was owed to Shands and is included in prepaid expenses

and other current assets in the accompanying consolidated basic statement of net assets.

During 2010, Shands entered into an investment management agreement with the University of

Florida Investment Corporation ("UFICO") to manage a portion of its investments. UFICO was

created by the University of Florida Trustees for the purpose of managing assets held by UF and its

related corporations. As of June 30, 2011, the fair value of investments managed by UFICO on

Shands' behalf was approximately $193,733,000. Investment management fees of approximately

$228,000 were incurred for the year ended June 30, 2011.

Shands provides contracted services at cost to Shands Jacksonville Medical Center, Inc. (“Shands

Jacksonville”), a related party entity controlled by the University of Florida, for administrative

support services. The amount credited against expenses for these contracted services was

approximately $5,712,000 for the year ended June 30, 2011. At June 30, 2011, approximately

$831,000 was owed to Shands under these agreements and is included in prepaid expenses and

other current assets in the accompanying consolidated basic statement of net assets.

Shands Jacksonville provides organ procurement services to Shands. Expenses related to the

organ procurement services were approximately $513,000 for the year ended June 30, 2011.

At June 30, 2011 Shands has a note receivable of approximately $41,635,000 due from Shands

Jacksonville. The original amount of the note was approximately $42,276,000 to be paid in

quarterly installments of $804,620 including interest of 4.5% and matures on October 1, 2030. The

current portion of the note receivable of approximately $1,368,000 is included within prepaid

expenses and other current assets and the long-term portion of the note receivable of

approximately $40,267,000 is included within other assets in the accompanying consolidated basic

statement of net assets.

12. Concentrations of Credit Risk

Shands grants credit without collateral to its patients, many of whom are local residents and are

insured under third-party payor agreements. Shands does not charge interest on accounts

receivable. The composition of receivables from patients and third-party payors is as follows:

Medicare 26.2%

Medicaid 13.6%

Other third-party payors 59.8%

Patients 0.4%

100.0%

Certain financial instruments potentially subject Shands to concentrations of credit risk. These

financial instruments consist primarily of cash and cash equivalents and patient accounts

receivable. Concentrations of credit risk with respect to patient accounts receivable are limited to

Medicare, Medicaid and various commercial payors. Shands places its cash and cash equivalents

and investments with what management believes to be high-quality financial institutions and thus

limits its credit exposure. Shands has deposits in excess of the federal insured amount of

$250,000. Management does not anticipate nonperformance risk by the financial institutions.

Shands Teaching Hospital and Clinics, Inc. and Subsidiaries Schedule of Plan Funding Progress (Unaudited) July 1, 2006 Through June 30, 2011

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Actuarial Accrued UAAL as a

Actuarial Liability (AAL) Unfunded Percentage

Actuarial Value of Projected AAL Funded Covered of Covered

Valuation Assets Unit Credit (UAAL) Ratio Payroll Payroll

Date (a) (b) (b–a) (a/b) (c) (b–a) / (c)

July 1, 2006 405,682,816$ 398,704,850$ (6,977,966)$ 101.8% 342,650,612$ -2.0%

July 1, 2007 510,110,923 446,075,640 (64,035,283) 114.4% 374,703,980 -17.1%

July 1, 2008 516,653,578 504,184,948 (12,468,630) 102.5% 393,947,017 -3.2%

July 1, 2009 506,841,837 535,105,649 28,263,812 94.7% 410,812,664 6.9%

July 1, 2010 551,570,055 576,104,670 24,534,615 95.7% 410,512,664 6.0%

April 1, 2011 625,296,308 628,781,832 3,485,524 99.4% 396,053,964 0.9%

Shands Teaching Hospital and Clinics, Inc. and Subsidiaries Historical Summary of Actual and Required Pension Contributions (Unaudited) July 1, 2005 Through June 30, 2011

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Employer Contributions

Annual Annual

Required Contributions Percentage

(Fiscal) Plan Year Contribution Made by Shands Contributed

July 1, 2005 to June 30, 2006 17,443,288$ 21,865,500$ 125.4%

July 1, 2006 to June 30, 2007 18,877,847 29,647,500 157.2%

July 1, 2007 to June 30, 2008 14,410,886 25,735,000 178.6%

July 1, 2008 to June 30, 2009 20,129,673 21,992,500 109.3%

July 1, 2009 to June 30, 2010 23,308,692 27,494,500 118.0%

July 1, 2010 to June 30, 2011 26,271,142 70,798,000 269.5%

Shands Teaching Hospital and Clinics, Inc. and Subsidiaries Historical Summary of Actual and Required Other Postretirement Contributions Under GASB Statement No. 45 (Unaudited) July 1, 2008 Through June 30, 2011

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Actual

Annual Contributions,

Required Net of Retiree Percentage

(Fiscal) Plan Year Contribution Contributions Contributed

July 1, 2008 to June 30, 2009 425,226$ (4,997)$ 100.0%

July 1, 2009 to June 30, 2010 448,460 (19,327) -4.3%

July 1, 2010 to June 30, 2011 447,254 146,133 32.7%

Employer Contributions

Shands Teaching Hospital and Clinics, Inc. and Subsidiaries Consolidating Basic Statement of Net Assets June 30, 2011


47

Total

Alachua

Shands County Shands Shands Total Shands

Shands Shands Shands Rehab Hospital Home Property Shands Live Subtotal Obligated at Lake Consolidated

Assets UF AGH Vista Hospital Eliminations Group Care Management Starke Oak Other Eliminations Group Shore Other Eliminations Total

Current assets

Cash and cash equivalents 14,093$ -$ 1$ -$ -$ 14,094$ -$ -$ -$ -$ -$ -$ 14,094$ -$ 3,700$ -$ 17,794$

Short-term investments 108,929 - - - - 108,929 - - - - - - 108,929 - 13 - 108,942

Patient accounts receivable, net 104,572 - 4,217 2,318 - 111,107 1,044 - - - 1,044 - 112,151 193 - - 112,344

Inventories 13,001 - - - - 13,001 - - - - - - 13,001 - - - 13,001

Prepaid expenses and other current assets 36,499 4 717 568 (498) 37,290 596 6 - - 602 - 37,892 37 380 - 38,309

Assets whose use is restricted, current portion 20,311 - - - - 20,311 - - - - - - 20,311 - - - 20,311

Total current assets 297,405 4 4,935 2,886 (498) 304,732 1,640 6 - - 1,646 - 306,378 230 4,093 - 310,701

Assets whose use is restricted, less current portion 201,814 - - - - 201,814 - - - - - - 201,814 - - - 201,814

Capital assets, net 704,082 1,666 8,106 2,344 - 716,198 215 14,530 - - 14,745 - 730,943 - 1,525 - 732,468

Due from affiliates, net - - - - - - - - - - - - - - 3,003 (3,003) -

Other assets 177,629 - 3,250 2,490 - 183,369 981 - - - 981 - 184,350 - 13,246 - 197,596

Total assets 1,380,930$ 1,670$ 16,291$ 7,720$ (498)$ 1,406,113$ 2,836$ 14,536$ -$ -$ 17,372$ -$ 1,423,485$ 230$ 21,867$ (3,003)$ 1,442,579$

Liabilities and Net Assets

Current liabilities

Long-term debt, current portion 20,834$ -$ -$ -$ -$ 20,834$ -$ -$ -$ -$ -$ -$ 20,834$ -$ -$ -$ 20,834$

Capital lease obligations, current portion 873 - - - - 873 - - - - - - 873 - - - 873

Accounts payable and accrued expenses 54,782 26 532 319 - 55,659 665 98 138 112 1,013 - 56,672 283 1,322 - 58,277

Accrued salaries and leave payable 49,737 - 69 39 - 49,845 11 - - - 11 - 49,856 - 26 - 49,882

Estimated third-party payor settlements 62,278 1,062 417 - (498) 63,259 - - 410 250 660 - 63,919 877 - - 64,796

Total current liabilities 188,504 1,088 1,018 358 (498) 190,470 676 98 548 362 1,684 - 192,154 1,160 1,348 - 194,662

Long-term liabilities

Long-term debt, noncurrent portion 477,839 - - - - 477,839 - - - - - - 477,839 - - - 477,839

Capital lease obligations, noncurrent portion 1,447 - - - - 1,447 - - - - - - 1,447 - - - 1,447

Due to affiliates, net 2,696 - - - - 2,696 - - - - - - 2,696 - 307 (3,003) -

Other liabilities 37,583 - 39 21 - 37,643 17 - - - 17 - 37,660 - - - 37,660

Total long-term liabilities 519,565 - 39 21 - 519,625 17 - - - 17 - 519,642 - 307 (3,003) 516,946

Total liabilities 708,069 1,088 1,057 379 (498) 710,095 693 98 548 362 1,701 - 711,796 1,160 1,655 (3,003) 711,608

Net assets

Invested in capital assets, net of related debt 207,074 1,667 8,106 2,344 - 219,191 215 14,530 - - 14,745 - 233,936 - - - 233,936

Restricted

Nonexpendable 97 - - - - 97 - - - - - - 97 - - - 97

Expendable 5,518 - - - - 5,518 - - - - - - 5,518 - 166 - 5,684

Unrestricted 460,172 (1,085) 7,128 4,997 - 471,212 1,928 (92) (548) (362) 926 - 472,138 (930) 20,046 - 491,254

Total net assets 672,861 582 15,234 7,341 - 696,018 2,143 14,438 (548) (362) 15,671 - 711,689 (930) 20,212 - 730,971

Total liabilities and net assets 1,380,930$ 1,670$ 16,291$ 7,720$ (498)$ 1,406,113$ 2,836$ 14,536$ -$ -$ 17,372$ -$ 1,423,485$ 230$ 21,867$ (3,003)$ 1,442,579$

Shands Teaching Hospital and Clinics, Inc. and Subsidiaries Consolidating Basic Statement of Revenues, Expenses and Changes in Net Assets Year Ended June 30, 2011


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Total

Alachua



UF AGH Vista Hospital Eliminations Group Care Management Starke Oak Other Eliminations Group Shore Other Eliminations Total

Operating revenues

Net patient service revenues, net of provision for

bad debts of $85,176 912,868$ 1,592$ 22,319$ 15,918$ (393)$ 952,304$ 6,975$ -$ 46$ 233$ 7,254$ -$ 959,558$ 786$ -$ -$ 960,344$

Other operating revenue 14,182 - 71 21 - 14,274 - 1,713 8 6 1,727 (993) 15,008 5 2,615 (245) 17,383

Total operating revenues 927,050 1,592 22,390 15,939 (393) 966,578 6,975 1,713 54 239 8,981 (993) 974,566 791 2,615 (245) 977,727

Operating expenses

Salaries and benefits 432,138 - 13,856 9,481 956 456,431 5,210 - 29 55 5,294 - 461,725 1 1,013 - 462,739

Supplies and services 408,406 1,284 5,377 3,585 (1,349) 417,303 1,492 1,387 656 541 4,076 (993) 420,386 1,810 1,923 (245) 423,874

Depreciation and amortization 50,433 - 566 268 - 51,267 52 629 - - 681 - 51,948 - - - 51,948

Total operating expenses 890,977 1,284 19,799 13,334 (393) 925,001 6,754 2,016 685 596 10,051 (993) 934,059 1,811 2,936 (245) 938,561

Operating income (loss) 36,073 308 2,591 2,605 - 41,577 221 (303) (631) (357) (1,070) - 40,507 (1,020) (321) - 39,166

Nonoperating revenues (expenses)

State appropriations 7,500 - - - - 7,500 - - - - - - 7,500 - - - 7,500

Interest expense (16,860) - - - - (16,860) - - - - - - (16,860) - - - (16,860)

Net investment income, including change in fair value 37,009 3 - - - 37,012 - - - - - - 37,012 - 39 - 37,051

Gain (loss) on disposal of capital assets, net (676) 10 - - - (666) (4) (5) 306 78 375 - (291) 4,327 1 - 4,037

Other nonoperating revenues 5,734 - 59 - - 5,793 - - (7) 3 (4) - 5,789 - (1,685) - 4,104

Total nonoperating revenues, net 32,707 13 59 - - 32,779 (4) (5) 299 81 371 - 33,150 4,327 (1,645) - 35,832

Excess (deficit) of revenues over expenses

before transfers, capital contributions,

changes in fair value of hedging derivative instruments, and other changes in net assets 68,780$ 321$ 2,650$ 2,605$ -$ 74,356$ 217$ (308)$ (332)$ (276)$ (699)$ -$ 73,657$ 3,307$ (1,966)$ -$ 74,998$

Shands Teaching Hospital and Clinics, Inc. and Subsidiaries Consolidating Basic Statement of Revenues, Expenses and Changes in Net Assets Year Ended June 30, 2011


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Total

Alachua



UF AGH Vista Hospital Eliminations Group Care Management Starke Oak Other Eliminations Group Shore Other Eliminations Total

Excess (deficit) of revenues over expenses before

transfers, capital contributions, changes in fair

value of hedging derivative instruments, and other

changes in net assets 68,780$ 321$ 2,650$ 2,605$ -$ 74,356$ 217$ (308)$ (332)$ (276)$ (699)$ -$ 73,657$ 3,307$ (1,966)$ -$ 74,998$

Capital contributions 674 - - - - 674 - - - - - - 674 - - - 674

Transfers and expenditures in support of the University

of Florida and its medical programs (37,675) - - - - (37,675) - - - - - - (37,675) - - - (37,675)

Change in accounting treatment of effective derivative

instruments and change in fair value of hedging

derivative instruments 39,649 - - - - 39,649 - - - - - - 39,649 - - - 39,649

Transfer of net assets in association with consolidation

and support of other operations and divisions of Shands (67,722) 2,844 46,068 23,779 - 4,969 2,335 10,321 (14,537) (5,937) (7,818) - (2,849) (12,159) 15,008 - -

Shands Jacksonville note receivable 42,276 - - - - 42,276 - - - - - - 42,276 - - - 42,276

Other changes in net assets 1,728 - - - - 1,728 - - (99) - (99) - 1,629 - 85 - 1,714

Increase (decrease) in net assets 47,710 3,165 48,718 26,384 - 125,977 2,552 10,013 (14,968) (6,213) (8,616) - 117,361 (8,852) 13,127 - 121,636

Net assets

Beginning of year, as restated 625,151 (2,583) (33,484) (19,043) - 570,041 (409) 4,425 14,420 5,851 24,287 - 594,328 7,922 7,085 - 609,335

End of year 672,861$ 582$ 15,234$ 7,341$ -$ 696,018$ 2,143$ 14,438$ (548)$ (362)$ 15,671$ -$ 711,689$ (930)$ 20,212$ -$ 730,971$

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